Jewish World Review August 12, 2002 / 4 Elul, 5762
The union believes that unconstrained spending by the richest three teams pulls up all payrolls. Most owners believe that baseball's problems -- competitive imbalance, the parlous financial conditions of many clubs -- result from large and growing disparities of what are mistakenly treated as "local" revenues.
These disparities largely reflect differences in teams' broadcasting revenues. The Yankees' broadcasting revenues ($62 million) are more than those of seven other teams (Kansas City, Minnesota, Oakland, Cincinnati, Pittsburgh, Florida, Milwaukee) combined.
The owners' initial proposal included two recommendations of the Blue Ribbon Panel on Baseball Economics (George Mitchell, Paul Volcker, Yale's President Richard Levin and this columnist). One is increased revenue sharing (from 20 percent to 50 percent of so-called "local revenues"). The other, to slow payroll growth, is a 50 percent tax on the portion of any team's payroll in excess of $98 million. Neither recommendation involves a new or radical concept. Baseball has revenue sharing now. It had a luxury tax from 1997 through 1999.
The union's initial proposal was to increase revenue sharing only to 22.5 percent, and no tax. The union likes the status quo. But this is the status quo: Of the 224 postseason games since the 1994 strike, 219 have been won by teams in the top two payroll quartiles. All World Series games since the strike have been won by teams in the top quartile. In 1991, 13 of the other 25 teams had payrolls at least 75 percent as large as the Yankees' payroll (which was smaller than Oakland's). Today, only four of the other 29 do. When the Yankees play the Tampa Bay Devil Rays, which they do 19 times this season, there is a $97 million payroll disparity ($135 million to $38 million). One day this May the Mets fielded a $63 million starting lineup against a $4 million Padres lineup.
Unlike the NFL and the NBA, which adopted their basic economic arrangements after (and because of) the advent of television, baseball's economic model predates radio. And flight. And the internal combustion engine. Today, as when the National League was founded in 1879, locally generated revenues stay with the local owner.
But the concept of "local revenues" is problematic, because no team sells a local product. To buy a team is not to buy an entitlement to all dollars generated by games in that market. Rather, it is to buy an association with MLB. All revenue streams of all teams flow from that association.
As Clark Griffith (of the old Washington Senators family) says, suppose a store sells baseball caps with four different ornithological emblems: a Cardinal, an Oriole, a Blue Jay -- and a Goldfinch. The first three will sell much better than the fourth, and the value of those three derives from their association with MLB, which should receive at least 50 percent of those misnamed "local revenues," to enhance MLB's collective health -- particularly, competitive balance.
Many players have scant knowledge of today's negotiations. On a team flight recently, a superstar, a very intelligent man, discussed the labor negotiations with a team executive. The player said: We will never accept a salary cap. He was startled to learn that no salary cap has been proposed for eight years.
Players who disbelieve MLB's financial difficulties may be convinced by developments already underway. Attendance is down for the third consecutive season (5.7 percent this year, which means almost $80 million in lost ticket revenue alone). Four of the top five amateur players picked in the June draft remain unsigned as teams balk at the players' demands.
The San Francisco Giants' payroll is $75 million, up from $65 million last year. Because of backloaded contracts, just keeping the current roster would make next year's payroll $85 million. But the Giants plan to trim to $70 million. This is a team averaging a league-best 38,658 fans per game in a park that seats 41,503 -- but a team paying $20 million yearly in interest on that park, which was built without public funds.
Negotiations are creeping at a glacial pace, primarily because the union is being dilatory. It may soon set a strike date, under the pressure of which differences will be split -- or not. The union may miscalculate, as in 1994, when it assumed the strike begun on Aug. 12 would be brief because the owners would surrender. Instead, the postseason was lost.
If a strike starts, do not expect to see baseball before next April. And do not expect to see today's levels of attendance then, or again.
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